Final For Econ

in the long run, each firm in a competitive industry earns -zero accounting profit -zero economic profit -positive economic profit -positive, negative, or zero economic profit

if your local gasoline raised its price by 20 percent, its sales of gasoline would decrease substantially because your local gas station -has little to no market power -is small relative to the size of the gasoline market -is a competitive firm -all of the above are correct

in a competitive market, the actions of any single buyer or seller will -discourage entry by competitors -influence the profits of other firms in the market -have a negligible impact on the market price -both a and b are correct

in the short run, a firm operating in a competitive industry will shut down if price is -less than average total cost -less than average variable cost -greater than average variable cost but less than average total cost -greater than marginal cost

when firms are said to be price takers, it implies that if a firm raises its price -buyers will go elsewhere -buyers will pay the higher price in the short run -competitors will also raise their prices -firms in the industry will exercise market power

when economic profits are zero in equilibrium, the firms revenue must be sufficient to cover all opportunity costs -true -false

a firm has market power if it can -maximize profits -minimize costs -influence the market price of the good it sells -hire as many workers as it needs at the prevailing wage rate

when new firs have an incentive to enter a competitive market, their entry will -increase the price of the product -drive down profits of existing firms in the market -shift the market supply curve to the left -increase demand for the product

which of the following is not a characteristic of a competitive market -buyers and sellers are price takers -each firm sells a virtually identical product -entry is limited -each firm chooses an output level that maximizes profits

in competitive markets, firms that raise their prices are typically rewarded with larger profits -true -false

a sunk cost is one that -changes as the level of output changes in the short run -was paid in the past and will not change regardless of the present decision -should determine the rational course of action in the future -has the most impact on profit making decisions

total profit for a firm is calculated as -marginal revenue minus average total cost -average revenue minus average total cost -marginal revenue minus marginal cost -(price minus average cost) times quantity of output

if firms are competitive and profit maximizing, the price of a good equals the -marginal cost of production -fixed cost of production -total cost of production -average total cost of production

a seller in a competitive market can -sell all he wants at the going price so he has little reason to charge less -influence the market price by adjusting his output -influence the profits earned by competing firms by adjusting his output -all of the above are correct

at the profit maximizing level of output -marginal revenue equals average total cost -marginal revenue equals variable cost -marginal revenue equals marginal cost -average revenue equals average total cost

when price is greater than marginal cost for a firm in a competitive market -marginal cost must be falling -the firm must be minimizing its losses -there are opportunities to increase profit by increasing production -the firm should decrease output to maximize profit

in the short run, a firm supply curve is equal to the -marginal cost curve above its average variable cost curve -marginal cost curve above its average total cost curve -average variable cost curve above its marginal cost curve -average total cost curve above its marginal cost curve

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $28. At this output, average total cost is minimized and equals $25. Given this information, what should the firm do? Select one: a. ​Continue to produce 200 units, since costs per unit are minimized b. ​Increase output beyond 200 units, since this higher output will yield the profit maximizing output level. c. ​Decrease output below 200 units, since this lower output will result in the profit maximizing output level. d. ​More information is needed to determine the firm's next step.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15. Select one: a. In the short run firms will shut down, and in the long run firms will leave the market. b. In the short run firms will continue to operate, but in the long run firms will leave the market. c. New firms will likely enter this market to capture any remaining economic profits. d. The firm will earn zero profits in both the short run and long run.

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? Select one: a. $5 and 50 units b. $5 and 100 units c. $10 and 50 units d. $10 and 100 units

The market demand curve for a monopolist is typically Select one: a. unit price elastic. b. downward sloping. c. horizontal. d. vertical.

Antitrust laws allow the government to Select one: a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.

Suppose a monopolist chooses the price and production level that maximizes its profit. From that point, to increase society's economic welfare, output would need to be increased as long as Select one: a. average revenue exceeds marginal cost. b. average revenue exceeds average total cost. c. marginal revenue exceeds marginal cost. d. marginal revenue exceeds average total cost.

Price discrimination is the business practice of Select one: a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal cost. d. hiring marketing experts to increase consumers' brand loyalty.

A natural monopoly occurs when Select one: a. the product is sold in its natural state, such as water or diamonds. b. there are economies of scale over the relevant range of output. c. the firm is characterized by a rising marginal cost curve. d. production requires the use of free natural resources, such as water or air.

Which of the following is not a characteristic of a monopoly? Select one: a. the seller has market power b. one seller c. free entry and exit d. a product without close substitutes

Most firms have Select one: a. no monopoly pricing power. b. some monopoly pricing power. c. absolute monopoly pricing power. d. the ability to earn monopoly profits.

A monopoly Select one: a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

When a monopolist reduces the quantity of output it produces and sells, the Select one: a. price of its output increases. b. price of its output remains constant. c. price of its output decreases. d. profits for the firm always decrease.

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as Select one: a. sabotage. b. conspiracy. c. arbitrage. d. collusion.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly Select one: a. is often not in the best interest of society. b. maximizes total economic well-being. c. is efficient. d. benefits consumers more so than the producer.

A competitive firm Select one: a. and a monopolist are price takers. b. and a monopolist are price makers. c. is a price taker, whereas a monopolist is a price maker. d. is a price maker, whereas a monopolist is a price taker.

A monopolist produces Select one: a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

Which of the following is not an example of a barrier to entry? Select one: a. A soybean farmer is the first in her county to use a new brand of fertilizer. b. Microsoft obtains a copyright for its Windows operating system. c. A pharmaceutical company obtains a patent for a new medication to treat migraine headaches. d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.

Reduced competition through merging of companies will raise social welfare Select one: a. if the social cost from the synergies exceeds the benefit of increased market power. b. if the benefit from the synergies exceeds the social cost of increased market power. c. always. d. never.

If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then the marginal revenue of selling the eighth unit is equal to Select one: a. $3. b. $4. c. $24. d. -$4.

Which of the following is not an example of price discrimination? Select one: a. A movie theater charges a lower price for a child's ticket than for an adult's ticket. b. A university rebates part of the cost of tuition in the form of financial aid for needy students. c. A local pizza chain offers a "buy three get one free" deal. d. An ice cream parlor charges a higher price for ice cream than for sherbet.

Monopolists can achieve any level of profit they desire because they have unlimited market power. Select one: True False

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly. Select one: True False

​If a monopoly market were to be transformed into a competitive market, the result would be that Select one: a. ​market output would increase. b. ​the market would be efficient, once the market reached the competitive output. c. ​the deadweight loss from the monopoly would be eliminated. d. ​All of the above would be true.

Which of the following is not a characteristic of monopolistic competition? Select one: a. a large number of sellers b. firms are price takers c. free entry into the market d. a differentiated product

In a monopolistically competitive industry, firms set price Select one: a. equal to marginal cost since each firm is a price taker. b. below marginal cost since each firm is a price taker. c. above marginal cost since each firm is a price setter. d. always a fraction of marginal cost since each firm is a price setter.

Some firms have an incentive to advertise because they sell a Select one: a. homogeneous product and charge a price equal to marginal cost. b. homogeneous product and charge a price above marginal cost. c. differentiated product and charge a price equal to marginal cost. d. differentiated product and charge a price above marginal cost.

The higher the concentration ratio, the Select one: a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct.

A concentration ratio Select one: a. measures the percentage of total output supplied by the four largest firms in the industry. b. reflects the level of competition in an industry. c. is related to the control that each firm has over price. d. All of the above are correct.

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will Select one: a. be able to increase its markup over marginal cost. b. eventually have to reduce price to remain competitive. c. increase the welfare of society. d. reduce its average total cost.

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. Select one: True False

Which of the following is true about a monopolistically competitive firm? Select one or more: a. ​It can earn an economic profit in the short run, but not the long run. b. ​It can earn an economic profit in the short run and the long run c. ​It can earn an economic profit in the long run, but not the short run d. ​It cannot earn an economic profit in either the short or long run

The two types of imperfectly competitive markets are Select one: a. markets with advertising and markets with price competition. b. public goods and common resources. c. oligopoly and monopoly. d. monopolistic competition and oligopoly.

​Which of the following goods is most likely to be associated with monopolistic competition? Select one: a. ​Gasoline b. ​Milk c. ​Cookies d. ​Wheat

A monopolistically competitive industry is characterized by Select one: a. many firms selling products that are similar but not identical. b. many firms selling identical products. c. a few firms selling products that are similar but not identical. d. a few firms selling highly different products.

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which Select one: a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.

​Which of the following is the most distinguishing characteristic of a monopolistically competitive industry? Select one or more: a. ​Market barriers b. ​One firm controls the industry c. ​Product differentiation d. ​A small number of firms dominate the market

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that Select one: a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.

A monopolistically competitive market has characteristics that are similar to Select one: a. a monopoly only. b. a competitive firm only. c. both a monopoly and a competitive firm. d. neither a monopoly nor a competitive firm.

A profit-maximizing firm in a monopolistically competitive market charges a price equal to marginal cost. Select one: True False

In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero. Select one: True False

In the long run, monopolistically competitive firms produce where demand equals average total cost. Select one: True False

As new firms enter a monopolistically competitive market, profits of existing firms Select one: a. rise, and product diversity in the market increases. b. rise, and product diversity in the market decreases. c. decline, and product diversity in the market increases. d. decline, and product diversity in the market decreases.

Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium? Select one: a. P > demand and P = MR b. ATC > demand and MR = MC c. P > MC and demand = ATC d. P < ATC and demand > MR

In general, game theory is the study of Select one: a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

Games that are played more than once generally Select one: a. lead to outcomes dominated purely by self-interest. b. lead to outcomes that do not reflect joint rationality. c. encourage cheating on cartel production quotas. d. make collusive arrangements easier to enforce.

Which of the following examples illustrates an oligopoly market? Select one: a. a farmers' market with many individuals selling sweet corn and tomatoes b. a city whose electrical service is provided by one electric co-operative c. a city with two firms who are licensed to sell school uniforms for the local schools d. a city with many independently-owned hair styling salons

The prisoners' dilemma provides insights into the Select one: a. difficulty of maintaining cooperation. b. benefits of avoiding cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices.

Because oligopoly markets have only a few sellers, the actions of any one seller Select one: a. do not affect other sellers in the market. b. can have a large impact on the profits of other sellers in the market. c. will affect how other firms behave in the market. d. Both b and c are correct.

Cartels in the United States are Select one: a. legal if price is competitively determined. b. legal if all firms in the industry agree to the terms of the cartel. c. legal if all conditions of the cartel are made public. d. illegal.

Policymakers should be aggressive in using their powers to place limits on firm behavior, because business practices that appear to reduce competition never have any legitimate purposes. Select one: True False

The story of the prisoners' dilemma shows why Select one: a. predatory pricing is clearly not in society's best interest. b. economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition. c. oligopolies can fail to act independently, even when independent decision-making is in their best interest. d. oligopolies can fail to cooperate, even when cooperation is in their best interest.

The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called Select one: a. fixed retail pricing. b. resale price maintenance. c. cost plus pricing. d. unfair trade.

A distinguishing feature of an oligopolistic industry is the tension between Select one: a. profit maximization and cost minimization. b. cooperation and self interest. c. producing a small amount of output and charging a price above marginal cost. d. short-run decisions and long-run decisions.

As the number of firms in an oligopoly becomes very large, the price effect disappears. Select one: True False

In a game, a dominant strategy is Select one: a. the best strategy for a player to follow only if other players are cooperative. b. the best strategy for a player to follow, regardless of the strategies followed by other players. c. a strategy that must appear in every game. d. a strategy that leads to one player's interests dominating the interests of the other players.

The primary purpose of antitrust legislation is to Select one: a. protect small businesses. b. protect the competitiveness of U.S. markets. c. protect the prices of American-made products. d. ensure firms earn only a fair profit.

A special kind of imperfectly competitive market that has only two firms is called Select one: a. a two-tier competitive structure. b. an incidental monopoly. c. a doublet. d. a duopoly.

A manufacturer of light bulbs sells its products to retail stores and requires the stores to sell the bulbs to customers for $2 per bulb. This practice is known as tying. Select one: True False

A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called Select one: a. a competitive equilibrium. b. an open-market solution. c. a socially-optimal solution. d. a Nash equilibrium.

The practice of tying is used to Select one: a. enhance the enforcement of antitrust laws. b. encourage the enforcement of collusive agreements. c. control the retail price of a collection of related products. d. package products to sell at a combined price closer to a buyer's total willingness to pay.

Predatory pricing refers to Select one: a. a firm selling certain products together rather than separately. b. a monopoly firm reducing its price in an attempt to maintain its monopoly. c. firms colluding to set prices. d. All of the above are examples of predatory pricing.

Which of the following statements about oligopolies is not correct? Select one: a. An oligopolistic market has only a few sellers. b. The actions of any one seller can have a large impact on the profits of all other sellers. c. Oligopolistic firms are interdependent in a way that competitive firms are not. d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.

A tit-for-tat strategy starts out Select one: a. conciliatory and then encourages an optimal social outcome among the other players. b. unfriendly and then encourages friendly strategies among players. c. friendly, then penalizes unfriendly players, and forgives them if warranted. d. aggressive, then compensates losing players, and eventually forgives unfriendly players.